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October 12, 2009 8:06 PM

Report: BofA to Waive Privilege in Merrill Flap

Posted by Zach Lowe

Update, 10/13/09 at 7:30 a.m. - Additional information from a New York Times report on when Bank of America's board approved a decision to waive privilege, and when the Bank notified Attorney General Andrew Cuomo of the decision, has been added below.

It's about to get a little uncomfortable over at Wachtell, Lipton, Rosen & Katz and Shearman & Sterling--not to mention inside Bank of America. In a bombshell reversal, BofA's board has voted to waive attorney-client privilege in ongoing federal and state investigations into its merger with Merrill Lynch, according to The Wall Street Journal and The New York Times.

As we've reported several times before, one federal judge (Jed Rakoff of the Southern District in Manhattan) and one aggressive regulator (New York attorney general Andrew Cuomo) have questioned the bank's reliance on attorney-client privilege during investigations of its acquisition of Merrill Lynch in December. The SEC has led a parade of regulators and politicians in investigating whether Bank of America violated various disclosure requirements in the merger. Among the most controversial: Whether the bank deceived investors by failing to make public the fact that Merrill had approved up to $5.8 billion in bonus payments to various executives. Public merger documents essentially said no such compensation would be paid, but those public documents warned that a confidential addendum might include compensation details at odds with those in the public record. As we've reported, M&A lawyers have said concealing controversial aspects of a merger in this way is commonplace. The SEC has claimed in court papers that the contradiction here is stark enough as to be a violation of disclosure rules.

Cuomo has also asked whether BofA knew about Merrill's disastrous fourth quarter losses before shareholders voted on the merger on Dec. 5--a revelation that would contradict earlier BofA statements that the bank only found out about the extent of the losses after the vote. A Congressional committee has made similar inquiries.

In all cases, the Bank, advised in New York by Cleary Gottlieb Steen & Hamilton and in Washington, D.C., by Wilmer Cutler Pickering Hale and Dorr, has refused to answer questions about intimate merger details.Their reason? Attorney-client privilege.

Now the bank has agreed to waive the privilege in order to ease the path to settlements with the SEC (in Rakoff's courtroom), Cuomo, and others. A waiver could result in the turning over of reams of documents detailing the communication between BofA and its M&A counsel on the Merrill deal (Wachtell) and Merrill's M&A lawyers at Shearman. Both of those firms have declined to comment on the matter.

According to the Times, BofA's board was advised to waive the privilege by its lawyers at Cleary Gottlieb Steen & Hamilton and a new team of lawyers from Paul, Weiss, Rifkind, Wharton & Garrison. "Bank officials supported the idea because they felt they have nothing to hide and want the bank to be able to move on," the paper reported, citing a source familiar with the bank's decision. The approval came on Friday and the bank notified Cuomo of its decision Monday, according to the Times.

The paper had reported earlier in the day that BofA had beefed up its legal team in New York by hiring Paul Weiss. According to sibling blog The Am Law Litigation Daily, the Paul Weiss team--led by partners Brad Karp, Daniel Kramer, and Mark Pomerantz--will be advising on the big consolidated securities class action against the bank and the SEC's case.

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